Moody's Analytics Chief Economist Mark Zandi on the US Economy

Barry speaks with Mark Zandi, chief economist at Moody's Analytics about his career and the state of the US economy today.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. This is Masters in
Business with Barry Ritholts on Bloomberg Radio.

Speaker 2 (00:16):
This week on the podcast Wow. What a fascinating conversation
with a really interesting, intelligent guy. Mark Zandy has been
the chief economist of Moody's Analytics for twenty years. He
co founded a regional analytics shop in the nineties, coming
out of both Wharton and University of Pennsylvania, where he

(00:40):
got his undergraduate and graduate degrees in economics. He buys
economy dot com in the late nineties and builds out that.
Really a fascinating career, unique insight. You know, we live
in a highly polarized partisan world, whether it's the FED,
in flash, in labor, bls, the economy. I love speaking

(01:04):
to somebody who was an advisor to both the Mcking
campaign and the Obama White House. He just looks at
the world through a set of lenses that are data driven,
model driven and tries to provide the best analysis as
to what's going on, where and why. I thought this

(01:26):
conversation was great, and I think you will also with
no further ado. Moody Analytics Chief Economist Mark Zandy. Let's
just start with your background. You get a bachelor's from Wharton,
a doctorate in economics from the University of Pennsylvania. What
was the original career plan.

Speaker 3 (01:46):
I had no career.

Speaker 2 (01:47):
Plan, none, none, Never thought about going into markets economics,
like a PhD in economics. Were you thinking academia or
I definitely.

Speaker 3 (01:56):
Knew not academia. My father was professor at Penn. We
all went to Penn because discounted tuition at that time,
which is a long time you're going to tell me
it was free. It was free, wow, tax free, Wow,
tax free? And you know I have four siblings. Wow.
In fact, he actually he was a pretty smart guy.
He bought a redstone at forty second in Spruce, you know,

(02:19):
just off campus, and we all lived in that in
that redstone.

Speaker 2 (02:22):
Amazing.

Speaker 3 (02:22):
Yeah, all right.

Speaker 2 (02:23):
You come out of college in grad school with a
deep background in economics. What inspired you to explore a
career in economics.

Speaker 3 (02:33):
Well, my work was very empirical, and my thesis advisor
was the guy named Larry Klein. He was a novel laureate. Yes,
he got it as a result of all the work
he did building macro models us macro models, and I
needed to make money when I was in school, so
I work part time. His firm is called Wharton Econometrics.
You know, after the Wharton School were called.

Speaker 2 (02:53):
On a sec the school let him set up a
program called Wharton Economy at the company, a separate company
apart from the school, That's what I'm asking.

Speaker 3 (03:02):
Yeah, yeah, I don't know. I'm sure there was some
kind of financial arrangement. He must have paid some kind
of royalty or something to that, but I'm not sure.

Speaker 2 (03:08):
You know, but I don't think you could get away
with even paying royalties today. You couldn't set up Mit
Economics or a Stanford Econometrics.

Speaker 3 (03:16):
No you don't think so. Yeah.

Speaker 2 (03:18):
I mean, if you do certain research and you get
a patent, they get a piece of it. But setting
up like there is such a branding focus these days.
I can't imagine a big school would let you do.

Speaker 3 (03:31):
Do that unless you played a really big royal try soon.
But yeah, But anyway, so that was a firm, a business,
economic forecasting business, and so I learned the business as
a graduate student, you know, working there to earn money.
And I also use their main at that time as
a mainframe, and everyone was on There was.

Speaker 2 (03:49):
No pc is it's still the punch cards.

Speaker 3 (03:52):
Punch cards for portray. Yeah. Yeah, you wanted to change
the federal funds rate by twenty five BIPs. You punch
a card, you have a act of cards. You would
take it down to some guy who put it into
the main retake twelve hours and if you messed up,
if you hit the wrong you know button, then you
had to wait another twelve hours to get the answer. Well,
how how much was a quarter point increase in the

(04:13):
funds rate going to do damage to the economy? That
kind of thing.

Speaker 2 (04:15):
What was what was your doctoral thesis on?

Speaker 3 (04:18):
It was a regional economics. Uh, it was examining a
fancy word factor flow, so labor capital and the movement
between regions and the country. And that was the basis
for the firm I started in nineteen ninety called Regional
Financial Associates because at that time, so you.

Speaker 2 (04:36):
Started your own firm right pretty much right out of school.

Speaker 3 (04:39):
Let's try out of school.

Speaker 2 (04:39):
Wow.

Speaker 3 (04:40):
Yeah, with my brother and my best friend. My best
friend was also working he was in the graduate program
at Penn and we were working at Wharton together. We
could see there was a lot of problems, you know,
with the way it was being run, and it was
mainframe oriented and PC was just coming out, so we
were able to use the PC to do the things
that we needed to do. I remember in grad school
using this poke Macclassic in nineteen eighty eight. Mac really

(05:03):
and the technology was just, oh look how advanced this was.
Bearskins and stone knives, That's what it reminds. Well, we
bought ibms at the time, So you launched this.

Speaker 2 (05:13):
When does economy dot com come along to regional economics
almost a decade later, late nineties.

Speaker 3 (05:22):
Yeah, the internet boom really took off. What ninety eight,
ninety nine, two thousand.

Speaker 2 (05:26):
Yeah, like two years after the irrational of zuberant speech
is when it really became irrationally ninety six ninety six,
late ninety six Greenspan speech.

Speaker 3 (05:37):
In fact, we bought the url economy dot com. This
guy from Quest, he was an executive at Request. Sure,
of course, one of the baby bells went out of
at and T a hitquarter in Denver, I believe, yeah, Colorado, Colorado, right,
and he made it. He squatted on all these names.
In fact, when we were negotiating the price for that
buying Economy dot com, he was on a yacht somewhere

(05:59):
in the Pacific. It made so much money on the squad.

Speaker 2 (06:01):
So what did you end up paying for Economy dot
Com at the time.

Speaker 3 (06:04):
It's a lot of money. Two hundred fifty k Yeah.

Speaker 2 (06:06):
That is a and you one hundred exit eventually.

Speaker 3 (06:10):
Yeah, it certainly was a good investment, to.

Speaker 2 (06:13):
Say the very least. Yeah, I know your thesis advisor
was you mentioned Lawrence Klein and Nobel Laureate. Was he
an advisor to the firm when you were when you're
first building that out? Uh?

Speaker 3 (06:24):
No, I thought that he was older at that point. Uh,
and he was. Actually we were competitor now right to Wharton.
Oh what an econometric? Yeah, I don't thought it. I
mean we weren't really you do her a bunch of
guys right right, Yeah, and we got the Economy dot com.
I'm making this up, but we might have had forty
fifty employees something like that.

Speaker 2 (06:42):
Oh really, So, so what was it like building out
what essentially became a dot com in the late nineties?

Speaker 3 (06:49):
Oh it was a lot. It was so much fun.
I mean I've been a startup, I've been a small
business guy, and I have been part of now obviously
part of the movie is a large multinational. So I've
seen business from a lot of different angles. And I'll
have to tell you maybe because I was just young.
I mean, I loved being a startup. It was just
it's a lot of fun, especially if it's working. Yeah,
I can imagine. And we got lucky. You know, the

(07:10):
interstate banking happened, so all these banks needed to think
about their footprint outside of their state, so they needed
the data and information that we were playing. So if
I were a bank in Connecticut and I was thinking
about moving into Massachusetts, I now needed to understand the
Massachusetts economy and we would help. You know, Sewman Bank

(07:30):
wasnt Connecticut Bank. That wasn't our first clients back.

Speaker 2 (07:33):
In the day. So how you built this out in
the late nineties. You survived at dot com implosion because
although you were technically at dot com, you weren't a
frivolous clicks and eyeballs sort of company. It was a
real company with real clients and real revenue. Kind of
set you apart from pets dot com to the world.

Speaker 3 (07:54):
We were an economic forecasting for masquerading as a dot
com right because we you know, as at that time,
dot com your evaluations are a lot higher. And sure,
of course it was. Practically speaking, we set up economy
dot com, right, that was our When you came to
our site, you came to economy dot com. So it
was a way to advertise where you go to get
our information.

Speaker 2 (08:15):
And today you go to economy dot com and it
forwarded you to Moody's.

Speaker 3 (08:20):
It does.

Speaker 2 (08:20):
How did the relationship with Moodies come? About? Five six
years later?

Speaker 3 (08:24):
The CEO of Moody's Analytics was this fellow Mark Almada,
great guy. He was a Philly, Philly guy, and he
and I worked together at warn't Econometrics was Philly based
because of Klein, and he was a data guy. He
was in a cube next to me. I was in
this young economists working on models and data and forecasting.

(08:45):
He was a data person and so we knew each
other quite well. And he went on to Moody's at
that time was the rating agency and he did extraordinarily well.
Became the CEO of Moody's Analytics when they formed the
Moody's Analytics and he just knocked on the door and said, hey,
are you interested in selling? And the answer was no,

(09:06):
because we had no idea what it was worth, just serendipity.
Fitch knocked on the door at roughly the same time,
within a week or two. I don't I can't connect
the dots. No, it's nothing like a bidding, Yeah, exactly.
So we were able to get a price right, and
I do remember him saying to me, Hey, Mark, what
price would it take for us to end this this

(09:27):
negotiation to this day, I gave. I gave him a price.
He said, he took it right away and I got.

Speaker 2 (09:33):
Two years too little. Well, if you google it, it
says twenty seven million dollars. But I have no idea
how I get that. Is everything that I find through
AI and search, I always seems to have a little
asterisk with it. You know, you don't know what's especially
private stuff like that. So Moody's Analytics is a division
of Moody's, the big rating company. It's it's a group within,

(09:57):
is that right.

Speaker 3 (09:58):
Yeah, it's there's Moody's, the rating agency, and then Moody's Analytics.
More recently they've been we've been moving together, but it's
still I'm still in the entitique Moody's Analytics.

Speaker 2 (10:10):
So what was it like going from a startup to
a large multinational Entitalia.

Speaker 3 (10:15):
Was great because we were allowed to remain independent in
every respect except for some of the back office kind
of things that legal age.

Speaker 2 (10:24):
No one wants to do anyway.

Speaker 3 (10:25):
Yeah, sales, and that's the key reason why we sold
was because we were mostly US and we were trying
to go global and that's hard. It's very expensive. We
set up an office in London and Sydney and it
was difficult. And they have a giant client base with
other everywhere clients all over the world.

Speaker 2 (10:41):
That has to be a huge benefit to a small startup.
It allows you to really supersized.

Speaker 3 (10:48):
In a salesforce all over the world. Right, And you
know Moody's respected institution, but overseas it's highly respected if
you go into many emerging markets, right, rating debt sovereign
debt is really really critical, and so when a Moody's
or an SMP says something, it really does move markets.
And so it helped us raise our credibilities. We had

(11:08):
no credibility overseas and this allowed us to gain some
credibility right away.

Speaker 2 (11:13):
Speaking about gaining credibility, in two thousand and five, you
wrote a piece where are the regulators. The runaway housing
market needs tougher regulatory oversight. Very prescient analysis warning about, hey,
you can't just give mortgages to people regardless of their
ability to actually service that debt. What drove that analysis.

(11:38):
That was really the first time I became aware of
you as an economist.

Speaker 3 (11:42):
Yeah, I remember that piece. I'm a macro guy, but
my area of expertise is housing and housing finance. I
was watching the housing and mortgage finance markets very carefully
at the time.

Speaker 2 (11:52):
Which a lot of wool Street didn't really seem to
be paying much attention to. No, No, my mom was
a real estate agent. That's the only reason why I
was paying attention to this space. And that's probably how
I found you because we were having regularly so interesting
And it's a regional financial associates banks, regions, you know,
obviously it's real estate and housing are kind of top

(12:13):
of them, totally right. They write a lot of mortgages,
they make heelock loans and other things against it, and
they were losing market share to these unregulated non bank lenders,
a private label securities market market.

Speaker 3 (12:26):
And of course, and the regulators were my clients. So
the FDI see for many, many years was my largest
client by far and away. Wow. Yeah, So I you know,
I was looking at this space from the prism of housing,
housing finance and also from a regulatory perspective, and I
could see this was, you know, problem.

Speaker 2 (12:43):
Something was totally totally off foot.

Speaker 3 (12:46):
I did have one, I've had. I had a number
of periods of doubt in that and that lead up
to the crisis. One was the FED under Greenspan asked
me to come in and brief them on housing because
I was a housing guy. I give this talk, uh,
and it was pretty dark and at the end of
it saying that we're gonna have a problem. I didn't

(13:07):
think we're gonna have a problem to the degree we
had the problem, but I knew there was a problem coming.
That was the message of the talk. And when I finished,
I didn't get a single question from one FED member,
really not one.

Speaker 2 (13:17):
So there was this just a pro se discussion or silence.

Speaker 3 (13:24):
I was totally confused by the whole thing. Even green
there was guy ed Gramlik, who was of course remember
him kind.

Speaker 2 (13:31):
Of He was very much so he was in the
camp of, hey, you know, you have to be able
to the history of finance is not based on the
secure tire's ability to sell their product. It's based on
the barrow's ability to service the loan. If you take
that step out, you're asking for trouble.

Speaker 3 (13:51):
Yeah.

Speaker 2 (13:51):
So Gramlak very famously was the fly in the ointment
and also very right passed away before everything blew up.

Speaker 3 (13:59):
Yeah that's right, that's but even he didn't say anything.
So I walk out that meeting and I'm going, maybe
I have this over wrong. So points in time I
had my doubt, but it became clear.

Speaker 2 (14:10):
So so after the crisis in eight oh nine, or
eventually post financial crisis, you become an informal policy advisor
to the Obama administration. Tell us how that came about,
outside non partisan economic advisor.

Speaker 3 (14:28):
Well, that was the time when the administration trying to
figure out how do I respond? Obama administration just the
crisis had occurred September eight, he was in office by
January of nine. They used that period to try to
figure out, how do I respond to this mess? What
do I do? You know, both from becoming a fiscal
policy perspective, from a regulatory perspective, from all angles, and

(14:51):
I had done a lot of work on estimating so
called multipliers of different policies. So if you do this,
you know, what is the impact on the economy. If
you do that, what is the impact on the economy.
Now that's widespread, that kind of work. Lots of people
do that work, do it much better than I do.
But at the time, there were just really wasn't anyone
looking at it that way and trying to estimate those multipliers.

(15:13):
So they used those multipliers and trying to design the
response the stimulus so called stimulus package that they put
in place in January twenty in two.

Speaker 2 (15:23):
Thousand, arguably knowing near large enough to drive a recovery
in the economy quickly.

Speaker 3 (15:30):
Well, yeah, and I think that's the lesson that the
Biden administration took coming out of the pandemic.

Speaker 2 (15:35):
Right, even the Trump administration, the first CARES Act, the
first two CARES Acts were under President Trump.

Speaker 3 (15:40):
Right, Biden gets into office March of twenty twenty one,
twenty twenty one, he passes the American Recovery Act two
trillion dollars, and you know, obviously it was very large.
A lot of criticism, mean, Larry Summers was all over it,
thinking it's too large. But I think the Biden administration
was looking back at the Bomb administration and saying, hey, look,
the bombministration was we will come up with this package

(16:02):
and if we need more, we'll get it. They never
got it. So the economy struggled for ten years after
the financial crisis, and so the bidendministration saw that and said, hey,
we probably go for a bigger bite of the apple
because we may not get another bite, and therefore let's
go for a bigger package, right, And.

Speaker 2 (16:16):
That was over the next ten years, and that came
into the environment where the first Cares Act under President
Trump was the largest fiscal stimulus since World War Two,
at least as a percentage of GDP. Then there was
the Cares Act two under Trump, and then a whole bunch.

Speaker 3 (16:35):
Of I think got Cares Act three, and then you
come in with Biden.

Speaker 2 (16:37):
So Tears Act three was Biden, which was short term
and drop. But most of the other legislation under Biden
was was over ten the Infrastructure Bill, the Inflation Reduction Act,
those are all ten year legislation. So it feels very
much like the twenty tens was the era of monetary stimulus,

(16:59):
and the twenty twenties seems to be the era of
fiscal sit No.

Speaker 3 (17:02):
I hadn't thought of it that way, Barry, but that's
a really good way of putting it. Yeah, exactly. I
mean the Fed had to work really hard back in
the twenty tens because they weren't getting any support from
fiscal policy. That was government shut downs, that's right, treasury
debt limit battles. Fiscal policy was contractionary, and so the
Fed had to step in and provide a lot of support. Right.

Speaker 2 (17:20):
Congress did not. You know, they seem to have forgotten
everything we had learned from Keynes, and they remembered it
in twenty twenty. It's kind of amazing because I recall
being at a dinner with a number of people, including
some Nobel laureates in economics, and when I said, oh,

(17:40):
I think they're trying to cause a recession, Congress, they are.
They know how this works. They're just, you know, they
they want to submarine this administration. It was very much
poo pooed by the people there, and then eventually it's like, oh,
this has become much more partisan. And I wasn't making
a partisan argument. It was just an observation, Hey, we

(18:01):
know how this works. We've done giant fiscal stimulus, whether
it's tax cuts or spending. We know what the impact
is refusing to do it. I can't come up with
a better explanation other than we want to tank the ecounomy.

Speaker 3 (18:13):
Well, they get this guy out. The explanation of face
value was, of course, step is just in debt, right,
we want to rein that in.

Speaker 2 (18:19):
Right, except for giant tax cuts and big spending. Other
than that, you know, it's everybody is a deficit hawk
when they don't control the White House, and it doesn't
matter if you're Republican or a Democrat, your guy loses.
Suddenly the debt matters. And it's been going on my
entire adult life. It's so transparently political.

Speaker 3 (18:41):
Or where we are on the deficit and debt.

Speaker 2 (18:43):
Sure, so I want to ask about your relationship with
John McCain because I find this both fascinating and hilarious.

Speaker 3 (18:51):
Yeah, well, perhaps it equally is interesting. My friend Kevin Hassett,
uh huh, asked me to come help out the McCain campaign.
You know now, Kevin is the head of the National
Economic Council and Donald Trump. He was at AI, the
American Enterprise Institute at the time.

Speaker 2 (19:06):
And name consistently floated for potential figure roles.

Speaker 3 (19:11):
Yeah, and this is well before Obama came on the scene.
I didn't know prison Obama at all, and I knew
McCain and I admired him mostly around foreign policy, that's
obviously where his expertise was. But I also felt like
they needed real help. The campaign needed real help on economics,
and I was the guy who took all the incoming

(19:35):
information about the economy and translating that into what does
it mean for the economic activity and what how should
we the campaign respond to that. Well, I wasn't paid,
I wasn't officially part of the campaign, but that's the
kind of support I provided. But you know, obviously when
the crisis hit, Senator McCain, that wasn't his strong suit.
Right again, he was foreign policy, he wasn't economics. He

(19:56):
kind of struggled across the finish line and never really great.
I can recall briefing the campaign saying, we got a
real problem here, this is a this is gonna be
a mess, And there was complete kind of another's not
being will be okay, And so there was a little
bit of tension at the end of that campaign.

Speaker 2 (20:13):
It feels like he just encountered some unfortunate timing because
between the war in Iraq and the crisis, I think
the Bush administration had made any mainstream Republican unelectable in
two thousand and eight, and the Democrats put up a
charismatic guy. I don't think McCain would have been anything

(20:37):
but a really good president and in any other year,
a really strong candidate. Kind of shocking the way this
plays out. But you're often painted as this, Oh, that's
Andy is a lib like he was an advisor to
both McCain and Obama. That's more of someone trying to
serve as country, not a partisan.

Speaker 3 (20:58):
I have always provided advice when asked from both sides
of the aisle, so you know, sometimes more from the
D side, at times more from the R side, but
I've done both. Clearly, the political center of gravity has
shifted here and McCain, even McCain, I'm not sure where
that kind of lines up in the political spectrum. But yeah,
I've always been nonpartisan. It tried my very best to

(21:21):
be non person and even now it's tough to talk
about the economy as an economist in the given all
of the things that are going on with economic policy,
tariffs and immigration and doge. Generally, when I address the group,
I start saying, you know, I know I'm going to
sound political. I don't mean to be political. I'm doing
my very best not to be political, so please forgive me.

(21:41):
And that generally people take that in and you know,
forgive me if I overstep in some way in their mind.

Speaker 2 (21:46):
It's tough to be an honest criticizer of policy without people.
It's kind of a lazy accusation to say, Jacques ces
this is partisan. Well, no, we could. We talk about tariffs.
We tried them in nineteen thirty, didn't work out great.
Why do we think it's gonna work out well this time?

(22:07):
That's not partisan, that's just that's the factual situation.

Speaker 3 (22:11):
Right.

Speaker 2 (22:11):
If you want to make an argument for why a
consumption tax on consumers of imported goods is an efficient,
effective way to either lower the deficit or raise capital
or realign global trade, have at it. But understand there's
a body of history that informs us what happened the

(22:32):
last time.

Speaker 3 (22:33):
Totally. It's so interesting because on almost every issue economists debate,
and the debate is reasonable, right.

Speaker 2 (22:39):
Economists, reasonable people can disagree.

Speaker 3 (22:42):
Yeah, And economists think about the second, third, fourth, fifth
order effects of these things and how they platter of time.
So it's very not at all unusual to have these knockout,
dragged down fights between economists over issues. But on tariffs,
broad based tariffs, it's not much of a right.

Speaker 2 (23:01):
Is a pretty big consensus. Hey, the world is in
flat we chink Saturday.

Speaker 3 (23:05):
So I feel like I'm on pretty sound ground when
I say I'm not a fan of these broad based turves.

Speaker 2 (23:12):
The phrase that always comes up with me on these
sort of things, these accusations of partisanship, is the Overton window.
You could be middle of the road, or you know,
maybe center left or center right, but when the entire
framework shifts far to one way or another, it suddenly
looks like you're an outlier, even though you were kind

(23:32):
of centrist but kind of how I feel right, the
wings have expanded, and suddenly what seems like it's pretty
middle of the road isn't any any longer. Coming up,
we continue our conversation with Mark Zandy, chief economist of
Moody's Analytics, discussing what the firm is focusing on in

(23:53):
the twenty twenties I'm Buried Richults. You're listening to Masters
in Business on Bloomberg Radio. I'm Barry Ridults. You're listening
to Masters in Business on Bloomberg Radio. My extra special
guest this week was Mark Zandy. He's the chief economist

(24:14):
of Moody's Analytics. Previously, he co founded economy dot com
and hosts the Inside Economics podcast.

Speaker 3 (24:23):
I bet you say that to all the economists.

Speaker 2 (24:24):
Everybody is my extra special guest. I get grief about
it because once I painted myself into that corner. Hey,
my ordinary guest is this bomb. Let's talk about your
Moody's experience. We talked earlier about, you know, your warnings
on housing and home financing and what ended up happening

(24:45):
with subprime securitization. Moody's was one of the biggest rating agencies.
I criticized them in Bailout Nation. Tell us what it
was like when you join the firm and O five
in you're wagging a finger about these sort of things.
Did you get any sort of pushback? What what was
it like stepping into a firm that indirectly was a

(25:10):
focus of some of your analytical critiques.

Speaker 3 (25:12):
Yeah, I got to push back.

Speaker 2 (25:13):
You did I did.

Speaker 3 (25:14):
Yeah, I mean I wrote a paper on the subprime
mortgage space and did everything but say, you know, these
securities should be downgraded, house price declines, credit risk defaults, foreclosure.
These are the losses. But I didn't take it with
the next step and say, okay, what does this mean
for ratings? But I wrote that paper and it went

(25:34):
to the CEO, a great guy in the CEO's.

Speaker 2 (25:38):
CEO of analytics, or the CEO of Moody's Moodies full
and full Moodies, right, and.

Speaker 3 (25:43):
This, of course I just had sold my company to them,
so this is all brand new. He didn't who is
this guy? What's what's he doing?

Speaker 2 (25:51):
Sandy, Andy, that's the back of the alphabet. We never
get to this stuff.

Speaker 3 (25:55):
And he goes, why is he talking about subprime mortgage?
What does that have to do about the economy? And
at the time that was a reasonable question. The best
thing that ever happened. BERNANKI gave a speech called contained
subprime Mortgage, right, and remembering that speech and he said,
don't worry, this is not a problem. But because he
wrote that speech, I could gave you. I said, look,

(26:15):
this is why I'm talking about it. Right.

Speaker 2 (26:17):
The head of the FED is talking about it. What
was he vice chair or just a governor back then,
or was that as chairman?

Speaker 3 (26:24):
He was chair? I think at the time he was,
he was definitely chair. To the CEO's credit, he said, okay,
you know, you publish it and it's the best thing
that ever happened. Well, one of the things best things
that happened to mood is because when the financial inquiry commissioned,
remember the Finish f C.

Speaker 2 (26:39):
I sa absolutely they and that I have that book.
It's like this thick sitting on a show.

Speaker 3 (26:44):
Oh yeah, yeah, yeah, I was. I was testified. I
was the first panel panels, and of course the CEO
was a later panel with Warren Buffett. Warren Buffett was
the is a shareholder in movies. I think he still
is a big shareholder. The law makers were questioning them,
and the CEO could say, hey, look here's here's a study.

Speaker 2 (27:06):
Can I tell you something a little self awareness?

Speaker 3 (27:10):
So that yeah, I've been there for twenty years. I
love Moodies. But that really helped a lot, right in
every respect. That helped my credibility, helped the companies, yeah, help.
The companies established a set of ground rules that I'm
able to write about, think about talk about anything that
I think is important about the economy. All that was

(27:31):
established in that point now that that's getting tested at
different points in time as we move along here. But
and we're in a trying time now. But that was very,
very important to my successful stay at Moodies for twenty years.

Speaker 2 (27:43):
I wish I could remember who wrote a criticism in
response to the Bernanke speech about subprime, because the line
was subprime is contained and the response it could have
been Allen Abelson and Barons, it could have been James Grant,
could have been Josh rosin Atrailing, but it was Yes,

(28:03):
subprime is contained to planet Earth. The rest of the
Solar System is safe. And it was one of those
lines where damn, I wish I wrote that I might
have been able Sin or Grant.

Speaker 3 (28:15):
But it sounds like a Jim Grant, right, it very
much does.

Speaker 2 (28:18):
It's sort of dry.

Speaker 3 (28:19):
Still writing, I think, so, yeah, you know, we'll kind
of lost track.

Speaker 2 (28:23):
Yeah, it happens, especially in this era of sub stack,
where right your inbox is just overflowed with kind with stuff.
So you got some pushback, but they cleared it. I
got to ask, what was your experience. Like at Moody's
during the Great Financial Crisis, it had to be twenty
four to seven work plus terrifying everything.

Speaker 3 (28:46):
Oh, it was an amazing scary I can remember a
few scary, real scary moments in my mind. You know,
when I got a call from a CEO of a
major retailer saying that, you know, if we don't do something,
he's gonna not be able to make payroll, you know,
on and I'm saying, I'm thinking to myself, he's telling

(29:06):
me this, we got a real problem.

Speaker 2 (29:09):
Well he wants you to tell Yeah.

Speaker 3 (29:11):
That's what it wants exactly what it was. That was
exactly what it was, didn't the.

Speaker 2 (29:15):
Bush administration I remember, was Hank Paulsen or BERNANKI have
conversations maybe it was the CEO of Ford or GM. Hey,
we have money, but our credit facility is frozen. We
can't get our money to make payroll.

Speaker 3 (29:30):
Right. Well, there was so many things going on. Remember
this commercial paper market was had frozen and yeah, completely frozen,
and of course that's key to making payroll for a
lot of these companies.

Speaker 2 (29:40):
I have a buddy who was on a derivatives trading
desk and he always pushes back when I use the
word frozen. He's like, hey, I don't know what you're
talking about. We were trading billions of dollars a day
in paper. It was just discounted thirty forty, so there
was liquidity, but there was a haircut involved well, and also.

Speaker 3 (29:59):
Just find out was it thirty or was it fifty
or was it seventy?

Speaker 2 (30:02):
You don't know.

Speaker 3 (30:03):
Yeah, you don't know.

Speaker 2 (30:04):
You don't know. That. That led to the line there's
no such thing as toxic paper, only toxic price.

Speaker 3 (30:10):
There you go.

Speaker 2 (30:11):
So yeah, absolutely, so that experience had to be just
mind blowing.

Speaker 3 (30:16):
Well also from coming just a purely academic perspective for
an economist, I mean, this was just an incredible time.
One once every century you see something like this, and
there's so much that you're learning while you're doing. And
it was not only just economics, it was also political economy.
You know, how what should lawmakers do and how should

(30:38):
they do it? And all the moving parts there. So
it was a very amazing time. And that's when I
wrote that first book. Was it's not a great book, Barry,
and there is. I really did write a chapter, chapter
seven on the rating agencies but I did not put
it in because I was part of the rating agency
and no one would believe me. Anyway.

Speaker 2 (30:58):
Now you've been there twenty years. The financial crisis is
more than fifteen years in the rear window. Tell us
a little bit about what Moody's Analytics is doing here
and now.

Speaker 3 (31:13):
We're very simple business. My part of Moody's is a
very simple business. We produce economic forecasts in scenarios.

Speaker 2 (31:20):
Yeah, but that's not really a simple thing to do.
There's a lot of inputs and a lot of moving.

Speaker 3 (31:25):
Parts there is, But the actual business itself is very simple.
And one of the things that has been kind of
a tailwind to our work has been the regulatory environment.
Right the financial intitutions all over the globe need to
do stress tests, kept for capital planning. It's even now

(31:47):
embedded in the Loan Loss provisioning of CECIL here in
the US as an accounting framework that requires forward looking projections,
IFRS nine overseas, climate stress testing, all those things require
a very disciplined, comprehensive approach to economic forecasting, and so

(32:07):
that's really been key to the key to the business
here over the last ten fifteen years.

Speaker 2 (32:12):
So that's kind of interesting your clients. Are they necessarily
Wall Street investing firms? Are they government institutions or non
governmental agencies?

Speaker 3 (32:24):
Above above?

Speaker 2 (32:25):
When when I think of climate stress testing, I just
was involved in the silly debate about climate change, and
my answer is, hey, my opinion is relevant. Go talk
to an insurer if climate changes as a hoax. Great point,
and what are your experiences doing climate stress tests for you?

(32:46):
Look how hard it is to get insurance in places
like Florida. Like how significant is something like that to
the sort of research you would sell to a private
actity like insurance?

Speaker 3 (32:57):
It's critical. So house prices go look at house prices
in Florida. We're talking about the West coast of Florida.
They're falling, and they're falling because homeowner's insurance costs are
rising because of the cost of hurricanes and other storm damage.
So the insurers take that all in they raise homeowners

(33:17):
insurance and that depresses demand and price, and of course
that has all kinds of implications for mortgage credit risk
if you're an mortgage insure, if you're in the mortgage
business any kind of respect. So that's a great example
of where you know, the kind of economic forecasting is
really critical to what's going on in real life, in
particular with the climate. It's real, it's happening, there's damage,

(33:40):
and insurers are trying to figure that out, and they're
not building that into their premiums, and it's having a
real impact. Right now, it's more concentrated in places like
Florida and Texas and California, but it's going to become
more of a problem in other parts of the country,
you know, pretty quickly.

Speaker 2 (33:56):
Huh to say the very least. We've seen fires in California,
We've seen flooding in the mid Atlantic states.

Speaker 3 (34:04):
Tell me get there's a good factoid for you, or
I'll ask you. I ask you guess which state has
the highest home owners insurance costs in the country.

Speaker 2 (34:13):
So the two that come to mind immediately of Florida
and California. But the question makes me think it wonder,
are we talking about places like Texas or the.

Speaker 3 (34:25):
Carolinas, Nebraska?

Speaker 2 (34:27):
Nobrat because the tornadoes.

Speaker 3 (34:29):
Well, yeah, and convection convective storms, the the the the
big thunderstorms that come along and they drop a lot
of that. Hell the hell does tremendous damage.

Speaker 2 (34:40):
Yeah, yeah, you know, we just had a mild storm
and this little brand smashes the windshield of the truck
and I'm waiting three weeks to replace it. And when
I ask the we have glass coverage, and I asked
the insure about this, They're like, you have no idea
how backed up everything is. And they're a delays in

(35:00):
getting dumb things like windshields. So all that stuff, plus
all the pandemic shortage of automobiles and things like that,
that's driven automobile insurance up. I never would have guessed Nebraska.

Speaker 3 (35:15):
That's an amazing isn't that interesting? And and and also.

Speaker 2 (35:17):
Who's number two or three? I'm curious who's right behind them?

Speaker 3 (35:20):
Like we're up there, they're up. They're definitely top ten. Yeah,
top ten. The state that had the lowest, and this
is I'm sure going to change when we get more
up to dated is Hawaii. But well you just had
the fires, right fire, so that's going to change. But
that that had been the case. But the other thing
is overseas climate is a real issue. Just go to Indonesia.

(35:41):
The Central Bank is you know, a client, and they
they're doing a lot of climate assessment because Jakarta is
increasingly underwater, right, So.

Speaker 2 (35:51):
Literally not you don't mean negative cash flow, you mean.

Speaker 3 (35:55):
Literally inner seawater is sea levels rising and there's there's
there's doing real damage and so you have to consider that.
So here in the US, it's an issue overseas is
becoming in some parts of the world existential, you know.

Speaker 2 (36:08):
The I'm trying to remember if this was Wired or
the Atlantic, But there was a big piece a year
or two ago about Miami and the flooding risk from Miami.
And this is very surprising. It's not the seas coming
over the land. It's that so much of South Florida
is built on the sort of limestone base which is

(36:31):
very poorous to water. And so the flooding is not
storm surging over the coastline, it's water bubbling up from right.
It's like a crazy I never you know, there's so
many random factors that if it's not your space, Wow,
Like I never would have guessed Nebraska and I never
would have guessed southern Florida.

Speaker 3 (36:53):
The sinkholes, right, that's why the sinkoles are real problem
because where in Florida, no kid, Yeah, because the bubbling
up it undermines the ground.

Speaker 2 (37:02):
That's that's unbelievable. Coming up, we continue our conversation with
Mark Zandi, chief economist at Moody's, discussing the state of
the economy today. I'm Barry Hults. You're listening to Masters
Business on Bloomberg Radio. I'm Barry Ridults. You're listening to

(37:28):
Masters in Business on Bloomberg Radio. My better than average
guests this week is Mark Sandy. He's a chief economist
of Moody's and hosts it. Hosts My Extra Special Guests
and called me out on it. So you know Cone
O'Brien's podcast. He makes everybody say their name, and I

(37:52):
feel blank to be Conan O'Brien's friend, and it's kind
of a funny throw it to the guests.

Speaker 3 (37:59):
To fill that in.

Speaker 2 (38:01):
And I forgot her name. She was on Shrinking Jessica
and former Daily Show. She said, I feel pressured to
say anything about being cornered, so I kind of painted
myself into the corner. Maybe I'm going to have it,
get a great job getting out of it. Maybe the
guests say, what sort of a guest do you this week?
So let's talk about the state of the US economy today.

(38:24):
How do you assess where we are what indicators are
most concerning to you, and then we'll drill down more specifically.

Speaker 3 (38:33):
The economy struggling. I think it's on the precipice of recession.

Speaker 2 (38:37):
Precipice of recession. Yeah, what does that mean? Does that
mean fifty to fifty chance this year? Because we've had
economists forecasting recession pretty much since twenty twenty two.

Speaker 3 (38:48):
To me, me, I haven't been.

Speaker 2 (38:51):
So this is a change. You're now starting to get
more cautious as nervous I've been, and you've been robust.
You've seen this as a robust economy the past few
years I have. So the switch is significant. It is
so what what is driving?

Speaker 3 (39:07):
I have to be humble because what ails the economy
is pretty obvious. It's economic policy, and it can change quickly. Therefore,
you have to be humble here because policy can change
and we may not the economy may find its footing
as a resultantly avoid recession. So there's a lot of
I hate using the word, but it's the only word

(39:27):
I can think of. It's uncertainty. I mean there is
a lot of that in economic pecast.

Speaker 2 (39:31):
I steer clear of the U word. And and what
do you say, lack of clarity like that, because I
think it's I think it's not as pregnant as I
like that. So lack of pity, but no doubt about that.
We've seen CFOs talk about withholding capex spending and even
families postponing trips to Disneylands, and the.

Speaker 3 (39:54):
Data say it so GDP growth the value of all
the things we produce that was barely one percent in
the first half of the year. Consumer spending has gone
nowhere all year long. Manufacturings in recession, constructions in recession.
Transportation distribution is in recession.

Speaker 2 (40:09):
Not You're not saying this is growth rate is slowing.
You're saying this is in the red, in the red.
Manufacturing construction. Why is construction in the red. There's such
a demand for housing.

Speaker 3 (40:22):
Home building is weakening very rapidly.

Speaker 2 (40:25):
Really is that a function of high rates and mortgages
or is that a function of, Hey, we can't find
people to build these houses, to say nothing of we're
going to home depot and deporting the guys looking for work.

Speaker 3 (40:37):
It's affordability. People can't afford the news.

Speaker 2 (40:38):
That's all it is.

Speaker 3 (40:40):
And the builders have done an admirable job trying with incentives,
interest rate buydowns to keep the market going and maintaining
construction levels. But that's over that. They're not able to.

Speaker 2 (40:50):
Do it, no buying down.

Speaker 3 (40:53):
So now we're seeing single family home building come down
for the first time. Multi family has been coming down
for for at least a year, right because it got overbuilt.
All these luxury towers going up in New York.

Speaker 2 (41:04):
And tom Beach.

Speaker 3 (41:05):
Vacancy rates are too high, rents are too weak. Uh.
The commercial uh, non residential site is also very weak.
The only strength is data centers. Really yeah, and that
that even with that, if you look at overall construction spending,
it's like over was it two trillion dollars? It's declining.

Speaker 2 (41:22):
So I was on the impression that medical facilities, warehouses,
things like that were still fairly robust. You're telling me
that's not a.

Speaker 3 (41:34):
Yeah, yeah there, you know. Healthcare is fine. Uh, data centers, booming,
offices are up way down. Multi families down. Residential uh,
single families way down. So you add it all up,
and now public construction is starting to roll over, right
because you had that big lift because of the infrastructure
legislation that was passed a few years ago.

Speaker 2 (41:53):
Still, but it's still on some of it is still on.

Speaker 3 (41:55):
High, but you know that the it's now rolling over.
It's a high level of spending, but you've now asked
the peak and spending it is not starting to come in,
and we're not going to see any more infrastructure spending
on the public side for quite something. Really, I don't
think I.

Speaker 2 (42:07):
Thought that would continue on for a couple of years.
Wasn't that like a five or thing.

Speaker 3 (42:11):
It's an elevated level. Oh and then growth is the
change in and you've passed the peak. It's coming now start.

Speaker 2 (42:19):
So you've talked about everything. We haven't gotten to the job,
by the way. That's that's my next question. Tell us
about the labor market.

Speaker 3 (42:26):
It's consistent with the economy is struggling. The job numbers
are showing very little job growth in recent months, and
I would not be surprised in the next few months,
assuming we get the data from the real labor statistics.
We can kind of talk about that. Assuming we actually
get the data, we could actually see some and that
would not be surprised if we saw some negative numbers,

(42:46):
you know, actual declines and employment.

Speaker 2 (42:48):
So Jim Bianco said something the other day that really
kind of surprised me. First time in US history. We
are actually seeing negative population growth, not not caused by
a war anything, but immigrants aren't coming to the country
and people are being deported, and by the end of
twenty twenty five we may have a lower total population

(43:11):
number than we had at the end of twenty twenty four.
What does that mean for the labor market?

Speaker 3 (43:16):
Yeah, I mean at the end of the day, if
you're a full employment and we're closed four point two
percent of employment rate, the only way you can generate
a job is if you've got someone to fill the job.
Right you need a labor you need someone who's working.
So if the labor force isn't growing and right now
it's just flat, it really has Actually if you look, well.

Speaker 2 (43:35):
You could have job openings, but just they're unfilled data.

Speaker 3 (43:39):
That's right, But it's not a job until you fill it.
So you could actually and right now labor force is
declining if you believe the data, believe the precision of
the data. But the level of the labor force in July,
the last STATA point is higher, is lower than it
was back in January, and so that would suggest that
it's going to be very difficul for the economy to

(44:01):
generate jobs, and it's very possible we start getting job
lost and just negative numbers.

Speaker 2 (44:06):
So what are you What odds are you putting on
a recession? And we'll talk about inflation and tafts in
a moment, but what odds are you putting on a
recession in Q four twenty twenty five or Q one
twenty twenty six.

Speaker 3 (44:19):
I think our baseline outlook, my baseline outlook has no recession,
just a weak economy. We kind of struggled the way through.

Speaker 2 (44:27):
Like a sub one percent GDP and a slight.

Speaker 3 (44:30):
One percent it's actually one percent on the nose year
over year through Q four of this year, Q one
of next, which is historically below the economy's potential. No
job growth.

Speaker 2 (44:39):
Zero, like a zero bls print every.

Speaker 3 (44:42):
I think i've average monthly job growth in sub one
hundred Oh wait, wait, like twenty five k? Really twenty
five k something like that?

Speaker 2 (44:50):
That that's a you know what's shocking about this sort
of discussion is regardless of who you voted for, what
your political affiliation is, there's no debate. The first quarter
twenty twenty five was a very robust economy, with markets

(45:11):
hitting old time highs, and here we are eight months later.
Revenue is high, profits are high, Expectations of forward growth
in the stock market is high. I know. The old
joke is stock markets have predicted none of the last
four recessions. But what are all time highs? And this

(45:32):
ongoing enthusiasm for growing corporate profits. What is that saying
about the accounty?

Speaker 3 (45:38):
Yeah, and that's the one reason why I don't have
a recession. In the baseline, the equity market is held up.
Although obviously a big part of what's going on the
equity market is related to AI, and that has nothing
to do with the business cycle.

Speaker 2 (45:50):
It's AI, and half of the S and P five
hundred revenues are overseas, so it may not be reflected
exactly its growth.

Speaker 3 (45:56):
And also, you got tax cuts, right, so if you
just assume stimulus, they have pe constant pe multiple. If
you raise after tax learnings, you should get a higher price.
So if you if you abstract from those things that
are independent of the economic cycle, the stock market at
best is flat from where it's the beginning of the year,
and that that's the economy. It's flat, it's gone nowhere.

Speaker 2 (46:17):
Now the economy is flat, But I mean the stock
market can still elevate off a flat economy with tax cuts,
AI spending exactly.

Speaker 3 (46:25):
Internet, And that's my sense of what's happening. So what's
going on in the equity market is actually, I think
consistent with what we're observing in the economy. Now. If
the stock market starts to head south written large, and
we see non AI part of the market starting to
go south here, I think that's the strong signal that

(46:45):
we're going in that we're going into it. And the
equity market is not only important as a signal, but
increasingly it drives economic activity because the bulk of spending
in the economy today is done by folks in the
top part of the income in well.

Speaker 2 (47:00):
Top twenty percent is half of top spending.

Speaker 3 (47:02):
By our calculations, the top ten percent account for oh
say you're right, stop twenty percent account for fifty percent
of the spell.

Speaker 2 (47:09):
Right, And the top ten percent is most of that.

Speaker 3 (47:11):
And most of that, and the top five percent is
most most of that.

Speaker 2 (47:15):
So very not a well distributed consumer spend. It's it's
high end, high end and luxury goods, which you know,
that's top two percent like that that that Skew is
very The good news is if you go buy a

(47:36):
private jet, you can depreciate all of it in year one.
Of the uh's to the new tax bill, but that
sort of stuff. So I remember when Bush did his
accelerated depreciation, which I want to say it was depending
on the item, it was three to seven years instead
of ten to twenty years. Being able to depreciate these

(48:00):
luxury goods, maybe that's a.

Speaker 3 (48:02):
Factor and end there. Yeah, and that should also help
the construction markets too, right, because.

Speaker 2 (48:08):
You would think, right state, it's a little different. So
I don't know if you could depreciate all of your
build out in year one, but I'm gonna guess it's
not a twenty year depreciation schedule. You probably can do it.
I should really ask one of my tax guys what
the depreciation schedule is for new construction, because you would

(48:30):
think that would encourage more building, and we desperately need
more single family.

Speaker 3 (48:35):
Homes and maybe the way out of recession. Not only
it's really get more fiscal support, right, and we will
likely get another reconciliation. A piece of BBB, the big
beauty Rail was reconciliation. They'll take another. They have another
shot at that on the other side of the fiscal year.

Speaker 2 (48:51):
October.

Speaker 3 (48:52):
Yeah, that's when the new fiscal year begins. And so
they could come up with more stimulus. Right, you've heard
talk of a stimulus check. You know, I'll pay for
the We'll take the tariff revenue, and I'll rebate some
of that back to Americans in the form of a check.
And that would that that would be stimulus for sure. Uh,
and that would.

Speaker 2 (49:10):
Listen to work. The last Trump indmustration, he wrote a
check and when people were stuck at home, and you know,
I try and be nonpartisan when I look at those
sort of things. It turns out Keynes was onto something
a century ago, wasn't he.

Speaker 3 (49:25):
Well, particularly if the economy's not at full employment. If
you're if you're flat on your back like you were
in the pandemic or financial crisis, you provide stimulus. Then
you don't get the crowding out, you don't get the
higher interest rates, you don't get the inflation, but you
get the growth. So we're now we're now closer to
full employment. So that's a bit of a more dangerous
game because if you overstimulate and your full employment, you're

(49:46):
gonna get the inflation. Already, inflation is an issue given
the tariffs and the immigration policy.

Speaker 2 (49:49):
So let's talk about tariffs before we get to inflation.
What's your perspective of the impact of both the policy
and the way it's been in implemented.

Speaker 3 (50:00):
Well, I'm not a fan of broad based tariffs. I mean,
strategic tariff's no problem. I can kind of get that,
but broad based tariffs. So you know, we've been there,
We've done that. You mentioned the nineteen thirties. In fact,
you can go back one hundred years before that under
Andrew Jackson, and we tried broad based traffs and it
didn't work out so well. It takes about one hundred
years for us to forget the mistake and do it again.

(50:21):
So I don't think this is going to end well,
it raises inflation by definition, and then we'll see more
of those past those prices pass through to consumers over
the next six to twelve months. As the time passes
here and it lowers growth, it pushes the economy towards stackflation.
And the immigration policy highly restrictive immigration policy, and I

(50:42):
get the need for addressing the southern border.

Speaker 2 (50:46):
We're talking about legal immigration, not illegal exactly.

Speaker 3 (50:49):
It's very restrictive, and that reinforces the higher inflation and
the weaker growth. So you've got two policies that are
very substantive working together to raise inflation. We can economic activity.

Speaker 2 (51:02):
So reducing legal immigration contributes to higher inflation.

Speaker 3 (51:06):
Explain that you're in the very go back to the
labor force, tight labor market, gotcha less bodies, highting, a
lot of businesses ag We know that restaurants, construction, leisure, hospitality,
elder care, childcare, all those things, and it will presumably
will raise costs labor costs, you'll wages rise and add

(51:28):
to inflationary pressures.

Speaker 2 (51:29):
So we keep hearing from the FED that their data
dependent things are ambiguous. There's no clear, necessarily clear path
to a future policy. Is that a reasonable response given
everything that's been going on, Because it seems odd to say,
on the one hand, we're at risk of recession. On

(51:51):
the other hand, there's a chance of increased inflation. Sounds
a lot like seventies era stagflation.

Speaker 3 (51:58):
It is stagflation.

Speaker 2 (51:59):
What is that mean for where rates could go over
the next couple of meetings. It seems like a twenty
five bip cut is sort of locked into September, right,
and I don't know how much of that is. Hey,
let's just throw a virgin in the volcano and make
the make the president happy. But there are credible reasons

(52:20):
in both directions. This isn't like one sided debate.

Speaker 3 (52:24):
I think their decision to stay on hold was the
right decision because they don't know what do I respond
to the inflation that I know is coming or the
weaker growth that is in train. I just and I
don't know where the policies are. I don't I have
no sense of where the tariffs are going to land
when they're going to land there. I don't know what's
going on with immigration policy. So let's just sit on
our hands and just let this thing unfold a little

(52:46):
bit before we can move on policy. Businesses are done
roughly the same thing. They're saying. I don't really know.
Therefore it's not I'm going to cut, but it means
I'm not going to expand I'm going to sit on
my hands, And that's why the economy has gone sideways
here since the beginning of the year. But here we
are now, and if you're at the FED, and I
think there are kind of their weights on their goals

(53:07):
are shifting. They're putting more weight on the economy than
on inflation. They're thinking is inflation because of the terriffs
will be more one off. They won't be persistent, which
I think is a reasonable thing to think. But we'll
have to see. But we know the economy's weakening, particularly
the job numbers, and I and I again going back
to we're going to get some negative numbers here, and
I think that's what they want to avoid, particularly in

(53:29):
the context of the political environment, because there's a lot
of stuff coming out of Washington about reevaluating the FEDS,
the the Reserve active of nineteen thirteen. They're independence and
if you're at the FED and you're seeing that, the
last thing you want to do is go into recession
and get blamed for the recession in the context of
all those kind of that political overlay.

Speaker 2 (53:50):
To say the very least. So we haven't really talked
about integrity of data, but since you alluded to it earlier,
let's bring it up. You know, I'm a big fan
of George Box. All models were wrong, but some are useful,
and so my experience over the past I don't know,
fifteen years, whenever I have a question about how something

(54:11):
is put together in either a BA or BLS data point,
I just pick up the phone and call them, and
they eventually rout you to the person. Oh, here's the
person who developed the birth death model, or here's the
person in charge of survey data. They couldn't be more forthcoming, transparent,

(54:32):
and helpful. And I'm kind of surprised at some of
the crazy stuff I hear from people. I just heard
a bunch of stuff about the MIT billion price project,
which ended up getting picked up by somebody, and they
were talking about how great that is, and I'm like, hey,
when you track this against CPI, they're almost identical. So

(54:55):
they're both different models. One is a little more skewed
to the waiting of how consumers spend money, the other
is just scraping all these data points, but they end
up in the same place. How do you think about
the integrity of data from the BLS right now?

Speaker 3 (55:12):
I think it's I think it's fine. There's problems, particularly
with survey responses, but everyone but.

Speaker 2 (55:19):
That's true everywhere. Look at University of Michigan, sentiment data
has been plumbting for ten and the answer to that
isn't cut budgets.

Speaker 3 (55:26):
It isn't to cut staff, it is to put more
resource into to help try to figure out how to
improve those response rates. But even in employment data, the
payroll employment day that we're focused on, the response rates
by the third month is the first month of response
rates sixty five I'm making this up, but roughly speaking, sixty.

Speaker 2 (55:42):
Five, which is below what it used to be.

Speaker 3 (55:45):
It's down from where it was. By the third it's
ninety ninety five percent. So it's still a very very
good survey. But we all as a result of the
low response rates. We always get revisions to the data.
In more typical times, when the economy moving in a
straight line, those revisions are small. When you're at an
inflection point or a turning point, like I've been arguing

(56:06):
we are, you get these big revisions. In fact, there's
information in the revisions. It's not a bug, it's a feature.
It's saying, hey, the economy's weakening, and so the response
rates the responses were getting after after the first month
or weaker than the ones we got in the first month,
and therefore we're revising down the data. That's signaling as
a strong tell that the economy is struggling and potentially

(56:27):
at a turning point.

Speaker 2 (56:29):
So you're saying the July non farm payroll, and I
don't want to put words into your mouth. We had
a July non farm payroll that was pretty punk that
came out the first week in August, but the revisions
were substantial for the prior two months. This isn't just
a noisy data series or somehow partisan wrangling. This is

(56:50):
a warning shot across the bow. Hey, the economy is
starting to transition into a weaker state. Exact pay attention
is that effects the point?

Speaker 3 (56:59):
That's the point. It's not that the data is any
worse than it has been historically. There's anything the fary
is going on. It's that is the nature of the data,
and it's telling us something. There's real information there, and
so I, you know, I do. The thing I worry
about the most is if there's a decision to not
release the data as timely as it's being released today.

(57:20):
The employment numbers that we've been talking about are the
most timely day to get released the Friday of the first.

Speaker 2 (57:25):
Oh the quarterly nonsense that came out, that just.

Speaker 3 (57:27):
Seems, yeah, that really makes me nervous.

Speaker 2 (57:29):
That's I think Wall Street would have a hissy fit.
You do if that happen?

Speaker 3 (57:33):
Yeah?

Speaker 2 (57:34):
The you know what people talk about the Powell put.
I prefer the expression the Trump collar when when the
market's near all time highs, he's embolden and rolls out stuff.
When the market's now fifteen to twenty percent, that's a floor.
All right, we'll pause this for ninety days because rightly

(57:56):
or wrongly, and I think there's more to this, then
we give President Trump credit for But when the stock
market is doing well, he takes that as his report card,
and when the stock market is doing poorly, it makes
him unhappy, and his bias is towards doing something anything.
What do we have to do to get the stock
market back on track? He doesn't care about polls. He

(58:19):
cares about one poll, and that's the Dow Jones Industrial
Average or the NASDUK or the SMP.

Speaker 3 (58:26):
Kind of focuses his attention. It's a nice way of
putting the Trump caller.

Speaker 2 (58:30):
So I don't want to make you late for lunch.
I have one more question before we get to our
speed round our favorite questions, and it's a curveball question,
which is what are investors and economists not talking about
but perhaps they should be. What what do you think
is an important topic? And I don't care policy assets, geographies,

(58:54):
what's getting overlooked?

Speaker 3 (58:55):
But shouldn't I say, FED independence, Not that people aren't
talking about it, but they're not focused on it like
they should be focused on it. I think this is
a real, potentially a real significant problem, and the independence
of the FED is critical to a well functioning market
economy like our own. We know that from our own history.

(59:17):
You can see what happened back in the seventies and eighties,
and or looking overseas, and we need to preserve that independence.
And it's not only about the actual independence, it's the
perception of independence that's really critical. And it just doesn't
feel like to me. You follow markets more closely than
I do, maybe have a different view, but I just
don't get this sentence that markets are focused on this
like they should be at this point in time. Huh.

Speaker 2 (59:40):
Pretty interesting? Take all right, let's jump to our speed round. Okay,
feel free to bang through these as quickly as you want.
We'll get you to lunch on time. Starting with who
your mentors, who helped shape your career?

Speaker 3 (59:52):
Well, I mentioned doctor Klein in the Nobel Laureate. He
clearly was a key person in my professional life. My father, uh,
professor of engineering at Penn by the way, he will
he'll claim he was the first to use neural nets
back in the day for the studies he was doing.

(01:00:13):
But I'd say those two folks are those two two
men were the key to my to my professional development.

Speaker 2 (01:00:20):
Let's talk about books. What are some of your favorites?

Speaker 3 (01:00:22):
What are you reading? Sounds hackney now, but you know, Barry,
I like, I just love Alexander Hamilton by Charnow. I mean,
I that was well.

Speaker 2 (01:00:31):
Because the book doesn't have any wrapping in it, people
should be aware if they go get this book, it's
a deep historical dive. It's not an entertaining bunch of
show tunes.

Speaker 3 (01:00:42):
Oh yes, that's for sure. But it's very entertaining, at
least from a nerdy kind of perspective.

Speaker 2 (01:00:48):
Charn now has a new book coming out this fall,
does any or did it come out?

Speaker 3 (01:00:51):
Well, I've got the I'm reading one on Washington.

Speaker 2 (01:00:54):
Is that is that?

Speaker 3 (01:00:55):
I think that's his latest? Yeah? I think so.

Speaker 2 (01:00:58):
He is an amazing writer.

Speaker 3 (01:01:00):
And uh and I like that period in economic history,
to say the very least, and then I don't. I
don't normally read self help books, but I like this
book Outlive. I know everyone else has read it by
oh sure, four years ago. So now I'm hanging.

Speaker 2 (01:01:17):
Is it worth reading? It's oh, Mark Twain is his name,
Mark Twain. That's right, it's a it's a tomb. It's
sitting on my nightstand gathering dust because it's so so intimidating,
deep deep research. Outlive.

Speaker 3 (01:01:34):
Oh yeah, So it's an easy book. It's summer book
right when you're on the beach. It's a how do
you live your life well? Long run, and it's a
lot of it's just intuitive. It's not non intuitive. But
there's some things in there that I found useful in
terms of the tests you should take. And I love
the the hanging. You big part of of the work

(01:01:58):
is around the strip grip strength, and so one of
the ways you improve your grip strength is by just
literally hanging from go try it. Okay, it's I've been
you know.

Speaker 2 (01:02:10):
He says chin ups or pull ups, you just have
to hang.

Speaker 3 (01:02:13):
You think this is easy, and he says, men, if
men can do it for two minutes, that's great. Women
one minute I'll tell you. I can't get. I literally
can I get.

Speaker 2 (01:02:21):
I can't imagine. I can't. I'm not going to do
ten pull ups, but I would be surprised if I
couldn't hang for right for two minutes.

Speaker 3 (01:02:30):
But yeah, I try, try try.

Speaker 2 (01:02:32):
Actually, that's that's that's interesting.

Speaker 1 (01:02:34):
All right.

Speaker 2 (01:02:35):
So we're talking about books. What about streaming? What do
you watch?

Speaker 3 (01:02:39):
My wife and I watch something every night, usually half
hour to an hour.

Speaker 2 (01:02:42):
And we're the same. It's a post pandemic. Yeah, because
when you were stuck at home, you couldn't go out,
didn't we all.

Speaker 3 (01:02:49):
I'm annoyed with all these streaming services, like like like,
come on, hit me a break.

Speaker 2 (01:02:54):
I mean, so, so what what are you streaming these days?

Speaker 1 (01:02:57):
Well?

Speaker 3 (01:02:57):
I got you? Got any suggestions?

Speaker 2 (01:02:59):
Yes, yes I do, I have plenty.

Speaker 3 (01:03:01):
I just finished disclaimer? Did you say watch one? Okay?

Speaker 2 (01:03:04):
I love a good suggestion disclaimer.

Speaker 3 (01:03:06):
Yeah, it's Kevin Klein and Cape Blanchett. Oh no kidding,
it's short six seven.

Speaker 2 (01:03:13):
I love those. We watched Apartment Q, which was a
limited series, is good, really interesting.

Speaker 3 (01:03:19):
Actually I watched that that was very good. This is
one I liked a lot. It's the ending is the
acting is great. Yeah, the ending is a little contrived.
They need to do two more episodes or something.

Speaker 2 (01:03:29):
I'll give you three interesting things. We've been watching My Wife.
My wife got me sucked into Killing Eve, which is
an espionage thriller. We just it's four seasons. We just
started the second season, everybody, and it is great. It's
a little, it's a little, you know, some of it is.
It's not terribly gory. People get killed. It's assassin and yeah,

(01:03:52):
you know, I don't like the police procedurals where they
show you all the when it's too realistic. Yeah, like
we tried to watch the pit. My wife is like,
I'm out, all right, I get that. So so Killing
Eve has been really interesting. And you know what's fascinating
about the Gilded Age is it's four stories old money,

(01:04:17):
new money, the staff in both of these houses across
the street, and then the old money secretary who is
a black woman, and then her whole family and that storyline.
But what's amazing is all the issues. It's one hundred
and fifty years ago. Today it's wealth inequality, it's status,

(01:04:39):
it's economic mobility, and it's tribal and it's so fascinating
the guilded Age really interesting. I didn't want to watch it.
To me, Dountain kind of looked like another soap opera,
but amazing cast. You get sucked into it. That's on HBO,
and so so said, so if a well department Q

(01:05:06):
was the limited. If you like the uh, if you
like the f spionage sort of thing, that one kind
of unfolds really slowly and deliberately. But Killing Eve is
much It's much faster and crazier and more interesting. And

(01:05:27):
it it's mostly takes place in Europe, which makes it
you know, it's I six, I won all sorts of
awards this like I got she sort of ready, and
when she was she I walk in and and like,
what's this? She's like, just watch ten minutes of the
first episode, all right, And we started watching it and

(01:05:49):
sucked right in.

Speaker 3 (01:05:50):
Oh that sounds good. I definitely watch that.

Speaker 2 (01:05:52):
It's four seasons we need, that's right. So it gives
you plenty and you can bang out to a night
very very comfortably. Our final two questions, what sort of
advice would you give a recent college grad interested in
a career in economics and finance?

Speaker 3 (01:06:08):
Just show up, show up, just show up.

Speaker 2 (01:06:10):
Do the work, show up, show up.

Speaker 3 (01:06:13):
I guess the other thing I'd say is I tell
my kids this. Every point of contact matters, every relationship,
every phone call, every email, every team's meeting, because things
come around. You know, you meet somebody in one way,

(01:06:34):
they'll come back ten years from now, and if you
did the right thing, if you were attentive to their
needs and interests, that'll benefit you in the long run.
It's not easy to do, it takes energy, but every
point of contact matters. Huh.

Speaker 2 (01:06:51):
Really interesting And our final question, what do you know
about the world of economics today? You wish you knew
way back in the nineteen nineties when you first starting.

Speaker 3 (01:07:00):
Out, Well, I didn't. I thought everything could go back
to your point about box and models. I thought everything
could be solved with the model. It's like, you, guys,
come on, this is just arithmetic, you know, mathematics. We could,
we should be able to do this now, you know,
the world is a very messy place.

Speaker 2 (01:07:22):
Really, really good stuff. Mark, Thank you for being so
generous with your time. We have been speaking with Mark Zandy.
He is the chief economist of Moody's Analytics. If you
enjoyed this conversation, check out any of the five hundred
and fifty previous discussions we've had over the past eleven years.

(01:07:42):
You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever
you find your favorite podcast. And be sure and check
out my new book, How Not to Invest The ideas, numbers,
and behaviors that destroys wealth and how to avoid them
How Not to Invest at your favorite bookstore. Now, I

(01:08:04):
would be remiss if I did not thank the Crack
team that helps put these conversations together each week. Meredith
Frank is my audio engineer. Alexis Noriega and Anna Luke
are my producers. Sean Russo is my researcher. Sage Bauman
is the head of podcasts at Bloomberg.

Speaker 3 (01:08:24):
I'm Barry Rittolfs.

Speaker 2 (01:08:26):
You're listening to Masters in Business on Bloomberg Radio.